ECON 1101: MIDTERM 1
50 Cards in this Set
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Durable good
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goods that last, multiple uses
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Single sided auction
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only the buyers OR the sellers bid, not both
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Double sided auction
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both sellers and buyers are bidding on prices
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Sealed bid
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the bidder's amount is kept secret from all the other parties
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Open outcry
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the bidder declares his bid to all other parties
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Monopoly
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one seller of one specific good, no competition with other sellers, therefore they can drive the price up to the buyer's reservation price
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Collusion
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insures that you can get a higher profit (cartel) illegal in the US and many countries
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Uniformed price auction
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the last bidder is the price setter, so all companies must sell at that price
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Competitive market
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a market in which there are many buyers and many sellers so that the behavior of an individual buyer or seller has a negligible impact on the market price
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Quantity supplied
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amount sellers are willing and able to sell
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Quantity demanded
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amount buyers are willing and able to purchase
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Demand shifters
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price of related goods, income, number of buyers, and consumer taxes
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Shifters of supply
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price of inputs, number of sellers, and technology
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Normal good
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when income increases, demand for good increases
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Inferior good
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when income increases, demand for good decreases
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Positive supply shock and negative demand shock
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price goes down, Q can go either way
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Positive demand shock and negative supply shock
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Price goes up, Q can go either way
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Horizontal demand curve
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perfectly elastic demand, demand can be anywhere
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Vertical demand curve
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perfectly inelastic demand, consumers are willing to pay any price to get a specific amount of the good
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Vertical supply curve
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perfectly inelastic supply, there is a limited amount of the good available to be sold in any market
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When e^D > 1
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demand is elastic
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When e^D < 1
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demand is inelastic
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Income elasticity of demand > 0
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the good is normal
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Income elasticity of demand < 0
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the good is inferior
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Two types of normal goods
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Necessity and luxury
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Necessity
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0<e^income<1, income inelastic, spending share falls as income rises
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Luxury
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e^income>1, income elastic, spending share rises as income rises
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Marginal cost
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the additional cost to sellers as a group of producing one additional unit of a good
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Marginal reservation price
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the additional value to buyers as a group of obtaining one additional unit of a good
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Consumer surplus
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= reservation price - cost to produce (the gap between what the agent was willing to pay and what he actually paid)
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Producer surplus
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= price received - cost to produce (gap between the minimum selling price and what he actually receives)
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Efficiency is NOT equal to
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Equality
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Gains from trade
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calculate consumer surplus of each buyer and producer surplus of each seller
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CS =
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triangle between demand curve and price line
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PS =
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triangle between supply curve and price line
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Pareto efficiency
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an allocation is pareto efficient if it is feasible and there is no way to make someone better off without making someone worse off
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General principle 1
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consumers with highest willingness to pay will consume
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General principle 2
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suppliers with the lowest cost will produce
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General principle 3
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the quantity is such that the marginal valuation (reservation price) of the last unit consumed equals the marginal cost of the last unit produced
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First welfare theorem
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market structure is perfectly competitive, no externalities (my action hurts or benefits other, but I don't take into account. Like pollution), the unregulated market allocation is pareto efficient
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Taxes
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form a wedge between the price the consumer pays and the price the supplier recieves
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Efficient quantity
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the quantity is where the marginal valuation of the last unit consumed equals the marginal cost of the last unit produced
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The more inelastic the side of the market you are on
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the more you pay the tax
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The more elastic the side of the market you are on
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the less amount of tax you pay
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Subsidy
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set up to supplement a consumer's purchase
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Price ceiling
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policy in which a price other than the market equilibrium price is implemented
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Price floor
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stops the price from falling down towards the equilibrium
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Uniform rationing
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CS depends on which consumers get the item since different consumers have different reservation prices for the item (low and high value customers are equally likely to get the item)
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If resales are allowed
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there is no deadweight loss
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Quotas
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a legal right to sell a unit of a good created by the government and limited in supply (more production requires the purchase of more quotas)
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ECON 1101: MIDTERM 1